Tuition Reimbursement: Benefits, Tips, and What You Need to Know

Learning is a life-long process. Especially with how quickly the world moves today, people have to continually invest in keeping their skills and knowledge up-to-date. While upskilling can happen during on the job and staff training, some employees want to take this to the next level by going back to school.

Tuition reimbursement plans can be a powerful way for companies to support employees that want to continue their education. Especially as tuition costs continue to rise in the United States, it can be an enticing benefit that helps your organization stand out from other employers in the competition for top talent. It can also show current employees that your company is invested in their professional development, which can aid with retention.

Here’s everything you should to know about rolling out a tuition reimbursement to strengthen your talent pool and business!

What is Tuition Reimbursement?

Tuition reimbursement is an employee benefit some employers offer to help their team members pay for education-related costs. Tuition reimbursement has become increasingly common in recent years as employers look to invest in their workforce and make higher education more accessible. 

Depending on the employer’s policy, financial assistance can cover tuition and enrollment fees, coursework materials such as textbooks and supplies, exam costs, and some types of technology.

What to Consider in a Tuition Reimbursement Policy

Offering tuition reimbursement can be a powerful investment in your workforce — one that boosts retention, engagement, and upskilling. But to make sure your program delivers ROI and aligns with employee needs, there are a few critical considerations to get right from the start.

Budget and Reimbursement Limits

Before you offer to foot the bill for a class, you need to know what you can afford.

Tuition reimbursement programs typically cap annual reimbursement per employee — often between $3,000 and $5,250. Why that number? Because $5,250 is the federal tax-free limit for educational assistance (more on that below!). Setting a clear limit helps keep your program sustainable and fair across teams.

Pro Tip: Account for both direct costs (like tuition and fees) and indirect costs (like administrative hours to process claims). You’ll also want to set an annual or per-semester reimbursement ceiling to manage expectations and budget predictability.

Tax Implications

Here’s where things get interesting. Under current IRS rules, employers can reimburse up to $5,250 per year per employee tax-free under a Section 127 educational assistance program. Employees don’t pay taxes on this amount, and you don’t pay payroll taxes on it. Win-win!

If you reimburse more than $5,250 annually, that extra amount is considered taxable income for the employee — so be sure to outline these thresholds in your policy to avoid surprises come tax season.

Eligibility and Requirements

Who qualifies for reimbursement? That’s up to you — but consistency is key.

You might choose to limit eligibility to:

• Full-time employees only
• Employees with a certain tenure (e.g., 6+ months of service)
• Workers in roles with a clear development path

Also consider performance-related requirements. Many companies tie tuition reimbursement to grades (e.g., a B or higher), continued employment after course completion (often 6 to 12 months), or job relevance.

Set these expectations clearly in your policy so employees understand how to stay eligible — and why it matters.

Types of Courses Covered

Tuition reimbursement doesn’t have to mean a master’s degree in business administration. You can tailor your policy to the kinds of education that benefit both employees and your company’s strategy. Some options include:

• Degree programs (undergraduate or graduate)
• Professional certifications
• Continuing education units (CEUs)
• Online courses or MOOCs (Massive Open Online Courses)

Want to broaden access? Include short-form learning that’s tied to internal goals — like a digital marketing certificate for your sales team or a conflict resolution class for new managers.

Alignment with Company Values

Here’s where your tuition reimbursement policy can really shine. Courses covered should connect to the company’s mission, culture, and growth plans. If you're committed to internal mobility, focus on learning that supports promotion paths. If you’re working to build a diverse and inclusive workforce, reimburse courses in DEIB leadership or cross-cultural communication.

How Does Tuition Reimbursement Work?

Rolling out a tuition reimbursement program requires establishing eligibility criteria and setting up a fund distribution structure. 

Any organization can outline its own guidelines for which employees are eligible to take part in the program. Some companies, like Starbucks, allow any part- or full-time employees to take part in its education partnership with the University of Arizona. Others limit eligibility to full-time employees, or only offer the program to employees with a certain tenure. Requirements you can consider for your program include:

• Working as a full-time employee for at least a year.
• Attaining a certain grade level in the company.
• Maintaining satisfactory job performance while enrolled.
• Taking classes aligned with the company’s goals and the needs of an employee’s department.
• Requesting reimbursement only for accredited institutions.
• Shifting to part-time employee status when a part-time student.
• Agreeing to pay the company back if participants leave their position within a set period of time post-graduation.

Companies also have flexibility in how they issue tuition reimbursement payments. Some issue reimbursement upon proof of enrollment, while others pay employees back upon completion of a course. Many programs offer 100% reimbursement, but some work on a sliding scale dependent on class performance (100% reimbursement for an A grade, 90% reimbursement for a B, and so on until no reimbursement is offered for a failed course).

However you structure your program (more on your options in a second), it’s important to note that there are tax implications for employees who receive more than $5,250 a year in tuition reimbursement from their employer. And take note that the funds provided by an employer can cover tuition and fees, as well as supplies and some equipment, but cannot cover meals, transportation, or lodging tied to an educational program. 

Types of Tuition Reimbursement Programs

That brings us to how much money your organization is interested in contributing toward education costs. You can offer many types of tuition reimbursement options like upfront payments, matching contributions, or per-credit-hour reimbursements. Here’s an overview of the most common structures. 

Partial reimbursement

Partial repayment is when an employer reimburses employees a percentage of the overall cost of tuition, such as 50% or 75% of the total. This structure incentivizes employees to engage in upskilling while limiting the cost the company incurs to offer the benefit.

Full tuition reimbursement

Some employers offer full tuition reimbursement to pursue a college degree. This benefit is often offered only after a team member has been employed for a certain length of time or reaches certain milestones with their job performance. One of the factors to address when designing a full tuition program is how it will be doled out over time. Does the company cover a two-year full time program, during which the employee is a full-time student with an agreement to return upon degree completion? Or is it structured as a part-time program and employees have a certain number of years to complete their program?

Graduate school tuition assistance program

Some organizations offer special programs to employees pursuing a graduate degree program. This could include full or partial payment for tuition costs, depending on the specific guidelines of each program. Many of these programs may require employees to commit to a certain number of years working for the organization after obtaining the degree.

Professional development funds

Professional development funds (also known as “PD funds”) can be used by employees to pay for specialized training, certifications, conferences, and other learning activities related to their job. These courses are typically a few weeks or months rather than a multi-year program. 

Paid days off in lieu of tuition fees

Sometimes, an employer may give employees a paid day off to take a course or workshop. Even if a full day’s work does not cover the entire class fee, it can save the employee some money while ensuring they have time to attend classes.

Stipends to pay off student loans

Employers can demonstrate that they value the investment their team members made in their education by helping them pay off their student loans. Companies that offer assistance with student loan repayments often provide a monthly stipend to help cover part or all of an employee’s monthly payment. Alternatively, some employers offer incentives like matching contributions or bonus awards if an employee makes regular payments on their loan balance.

Refinancing programs for student loans

Another way employers can help workers pay off their student loans is through refinancing programs. These programs allow employees to refinance existing student loans at lower interest rates, which can reduce their monthly payments and overall cost over time. Companies that offer this benefit may also provide additional incentives such as bonuses or contributions towards closing costs.

Pros and Cons of Offering a Tuition Reimbursement

Tuition reimbursements are an attractive perk for those considering working for the organization. They can give companies a competitive advantage over others that do not offer such benefits. If you’re looking at rolling one out, here are some of the pros and cons to plan around.

Benefits for Employers

Supporting your employees through tuition reimbursement enhances your relationship with them and has a ripple of positive effects. With the right plan in place, your program has the potential to: 

• Create a more positive work culture and foster personal growth.
• Encourage loyalty to a company that is helping them grow their skillset and career.
• Reward hard working employees.
• Provide an incentive for learning.
• Increase productivity.
• Make employees feel valued, improving morale and motivation.
• Attract higher quality talent due to career development opportunities.
• Increase retention of top performers.

Tuition repayment plans can also save companies money. In the short-term, there are tax benefits associated with offering such a program. In the long run, up-skilling current employees can be less expensive than hiring new employees to bring that talent into the organization. 

Challenges for Employers

Launching any new-to-you program has challenges to overcome. Potential complications you can prepare to mitigate when of implementing a tuition reimbursement program include: 

• Creating space in the budget for a potentially high-cost program.
• Conflicts within the workplace about perceived unfairness or favoritism if participation criteria is limited or unclear.
• Additional administrative work to verify that funds are going towards eligible courses or activities.
• An increased workload for the HR department as they ensure tuition reimbursements are paid out on time.

Benefits for Employees

A tuition reimbursement benefits can be e a game-changer for employees. 

Here’s what it unlocks for your team:

• Reduced financial stress: Education can be expensive. Reimbursement support removes some of that burden, making it easier to invest in personal and professional growth without taking on additional debt.
• Career advancement opportunities: With access to new skills and credentials, employees are better positioned for internal promotions, leadership roles, or lateral moves that align with their long-term goals.
• Increased confidence and job satisfaction: Investing in education boosts self-esteem and signals that the company sees an employee’s future as worth supporting. That can spark greater purpose and motivation at work.
• Skill-building in real time: Employees can apply what they’re learning right away, making their day-to-day work more dynamic and enriching — and often more efficient, too.
• More equitable access to learning: Tuition reimbursement creates a level playing field by reducing cost barriers to education, especially for employees from underrepresented or lower-income backgrounds.
• Greater sense of value and belonging: When employees know their company is willing to invest in them — not just as workers, but as people — it deepens their emotional connection to the organization.

A Benefits Package for Lifelong Learners

Lifelong learning happens in all avenues of life, not just in our careers. Whether that’s practicing healthier habits, investing in self-care, or taking up a new hobby — continued learning is continued engagement with life.

Offering tuition reimbursement as part of a larger wellness benefits package is a fantastic way to show employees that you value their personal growth and satisfaction. They demonstrate to your employees that you’re invested in helping them bridge the gap from where they are and where they want to be. 

If you want to learn more about how Wellhub can help you set up a wellness package that pushes your employees forward, speak with a Wellbeing Specialist today! 

References

• Maglione, F. (2023, March 28). Ivy League Prices Are Pushing $90,000 a Year. Bloomberg.com. Retrieved April 18, 2023, from https://www.bloomberg.com/news/articles/2023-03-28/how-much-is-ivy-league-school-education-costs-are-nearing-90-000-a-year
• More Companies Are Offering College Tuition Benefits To Their Employees. (August 26, 2021). Retrieved April 5, 2023 from https://www.forbes.com/sites/robertfarrington/2021/08/26/more-companies-are-offering-college-tuition-benefits-to-their-employees/?sh=795cac222fba.
• Tax Breaks for Employers on Tuition Reimbursement. Chron. Retrieved April 5, 2023 from https://smallbusiness.chron.com/tax-breaks-employers-tuition-reimbursement-12234.html.
• The Importance of Positive Relationships in the Workplace. (December 30, 2019). Positivepsychology.com. Retrieved April 5, 2023 from https://positivepsychology.com/positive-relationships-workplace/.
• Why More Employers Are Leveraging Tuition Assistance to Attract and Retain Employees. (October 11, 2021). Retrieved April 5, 2023 from https://www.shrm.org/ResourcesAndTools/hr-topics/benefits/Pages/Why-More-Employers-Are-Leveraging-Tuition-Assistance-to-Attract-and-Retain-Employees.aspx.